To say that Chinese stocks have been great performers in 2015 would be an understatement. They’ve been the hottest stock markets around.
So far this year, China’s Shenzhen Composite has jumped 47%, while the nation’s benchmark Shanghai Composite has increased 19%. Those kinds of nose-bleed returns in such a short amount of time are enough to get any investor excited.
And yet, many analysts believe that Chinese stocks still have much room to run throughout the year.
First, Beijing is expected to unleash another round of stimulus measure to boost sagging growth in the key emerging market. Those measures should be designed to help China reach its 7% GDP growth target.
Secondly, the current wave of share price increases are being led by the growth in Chinese high-tech firms. From internet media companies to healthcare firms, China is quickly becoming a leader in more technology-based companies.
Finally, retail investors in China are getting in on the action. As wealth has tickled down to the masses, more citizens in the nation are opening brokerage accounts and investing.
All in all, these factors should continue to light the fire under Chinese stocks, which means there’s still time for U.S. investors to cash in on Chinese stocks. And exchange-traded funds are the easiest way to add the nation to your portfolio. Here are three of the best ETFs to buy today.
Best ETFs for Chinese Stocks — iShares MSCI China Index Fund
Broad indexing still has many benefits, and in terms of Chinese stocks, the iShares MSCI China Index Fund (NYSEARCA:MCHI) may be the best ETF around.
As its name implies, the $2 billion ETF tracks the benchmark MSCI China Index. That index covers a wide spectrum of Chinese equities, including both large- and mid-caps. In fact, MCHI provides exposure to roughly 85% of the entire Chinese market available to international investors.
Currently, the ETF holds 141 different firms — including giant like Chinese internet stock Tencent Holdings ADR (OTCMKTS:TCEHY) and telecom China Mobile Ltd. (ADR) (NYSE:CHL).
That broad exposure to China’s equities makes MCHI one of the best ETFs for investors looking to profit from the nation’s continued rise. And it certainly has delivered in the returns department. MCHI has managed to post an average annual return of 14% over the last 3 years and is up an astonishing 23% year-to-date.
And as a core holding, MCHI is also a pretty cheap option as well. Expenses for the Chinese stocks ETF only costs 0.62% — or $62 per $10,000 invested.
Best ETFs for Chinese Stocks — Market Vectors China AMC SME-ChiNext ETF
The key to the rally in Chinese stocks has been quite small. As in small-cap Chinese stocks.
Chinese small caps have now surged to record highs and have increased more than three times as fast the rest of the Chinese market. The rally was sparked by Beijing’s continued interest — and big stimulus checks — into high-technology fields. Those types of stocks dominate the small-cap Chinese stocks scene.
Which explains how the Market Vectors China AMC SME-ChiNext ETF (NYSEARCA:CNXT) has gained around 49% this year, and why it’s one of the best ETFs for investing in China.
The new $47 million ETF tracks the performance of the 100 largest stocks listed and trading on the Small and Medium Enterprise (SME) Board and the ChiNext Board of the Shenzhen Stock Exchange. As a result, CNXT is firmly betting on China’s A-Shares.
A-Shares have long been restricted to domestic investors or those institutional investors with special Qualified Foreign Institutional Investor (QFIIs) status. As such, CNXT holds a basket of 100 stocks that you’ve never heard of. However, the ETFs dominant sectors are in the technology and healthcare fields. That makes it a great play on China’s next phase of growth.
Expenses for CNXT run 0.68%.
Best ETFs for Chinese Stocks — PowerShares Golden Dragon China ETF
If the idea of buying some unknown and formerly off-limits Chinese stocks doesn’t exactly sound appealing, how about Chinese technology stocks that trade on American exchanges-with our accounting and listing rules?
If that sounds more appealing, the PowerShares Golden Dragon China ETF (NYSEARCA:PGJ) is one of the best ETFs available.
PGJ tracks the NASDAQ Golden Dragon China Index, which focuses on companies that are headquartered or incorporated in China and derive a majority of revenue there, but are listed on U.S. exchanges. The ETF’s 73 holdings are a who’s who of Chinese firms that investors should be familiar with. These include Baidu Inc (ADR) (NASDAQ:BIDU) and PetroChina Company Limited (ADR) (NYSE:PTR).
More than 45% of PGJ’s portfolio is in technology. Another 30% of the fund is consumer discretionary stocks, alongside 8% in telecom and health care. The company’s largest single holding is Ctrip.com International, Ltd. (ADR) (NASDAQ:CTRP).
That composition makes PGJ one of the best ETFs for investors who are a little uneasy about betting directly on China’s smallest tech A-Shares.
Expenses for PGJ run 0.7%.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.
